This much is clear: the “powers that be” at the National Football
League understand the economics of supply and demand.

Today, US cities are pitted against each other to attract or keep
a limited supply of professional football franchises. As a result,
many invest huge sums toward new stadium construction as the
ultimate bargaining chip. But is the cost worth it?

Aside from major infrastructure, a new NFL stadium is invariablythe most expensive project its host city will ever see. One game-changing stadium after another hasbeen built in the past decade, raising thebar on stadium design to new heights.The Atlanta Falcons’ new Mercedes-Benz Stadium,which costupwards of $1.5billion, is themost expensive structure in the city’shistory. AT&T Stadium in Dallas cost$1.2 billion. The NFL stadium pro-posed for Las Vegas will cost an esti-mated $1.9 billion. And estimates forthe new Los Angeles stadium are a staggering $2.6 billion.

But these behemoths could prove to be among the last of
their kind as economic pressures and cultural shifts bring about
changes in stadium design.

Financing stadiums, a highly specialized niche in the commercialreal estate world, is fraught with controversy. There was a time whenarenas were thought to stimulate the local economy by creating jobsand drawing tourists, but research over the past two decades hasshown that, for host cities, the ROI on stadiums is negligible or evennegative. The Brookings Institution, a nonprofit public policy orga-nization, found that “regardless of whether the unit of analysis is alocal neighborhood, a city or an entire metropolitan area, the eco-nomic benefit of sports facilities are de minimus.”Bond ratings can be affected by issues such as the team’s per-formance, player strikes, controversies and the prevalence ofChronic Traumatic Encephalopathy (CTE) among players.

The complexities of bond debt aside, even the most loyal
sports fans have begun to wonder why taxpayers, not the NFL and
its billionaire owners, should foot the bill for stadiums, seeing as
how the public money invariably turns into private profit. Still, it’s
true that sports facilities have helped with revitalization in some
areas, and stadiums are a source of civic pride.

In any event, next-generation stadium design is bound to look
different. Even the lead architect for the Mercedes-Benz Stadium
thinks the Falcons’ facility will
be his crowning achievement in
terms of sheer size and scale.

Bill Johnson of 360 Architecturetold Atlanta Magazine that sta-dium projects have gotten tooambitious and he expects wewill “end up seeing smaller ven-ues, with remote watching sta-tions all over the city.”It’s possible that, as Internetdistribution grows, attendancewill shrink, leading to smallerbut more luxurious stadiums,offering ticketholders a sense of exclusivity. Another option, espe-cially if public subsidies for stadiums continue, is that future facili-ties will be embedded among commercial and residential proper-ties in multi-use developments, “with the sports team being like ananchor tenant in a shopping center,” says a Stanford economist.

Irrespective of the future stadium format, controversy over
public funding for these facilities is likely to continue. As long as
the NFL maintains the unwavering support of a gigantic fan base,
football stadium subsidies are likely to continue. That said, controversies diminish fan support and may ultimately reduce the
appetite for public funding of football stadiums.

Chris Roach is chief executive officer of BBG, a national commercial real
estate valuation, advisory and assessment firm. He may be contacted at
(877) 524.1187. The views expressed here are the author’s own.

Are Sports Stadiums a Losing Proposition for Cities?BRICKS AND STICKSBy Chris RoachGLOBAL DIGESTRisk Factors On the Rise forInternational Housing Bubble

More of the world’s major urban housing markets are at risk
of a bubble than in 2016, according to UBS Wealth Management
Chief Investment Office. Topping this year’s Global Real Estate
Bubble Index is Toronto, a new entrant.

As they were last year, Stockholm, Munich, Vancouver,
Sydney, London and Hong Kong are also still at risk of a bubble.
Joining them is Amsterdam, which was merely overvalued last
year. The only undervalued city in the UBS study is Chicago,
with three quarters of the 20 cities studied either at risk of a
bubble or overvalued.

San Francisco remains the most overvalued US city in thestudy, followed by Los Angeles. Also in overvalued territoryamong global gateway cities are Paris, Frankfurt, UBS’ head-quarters city of Zurich, Geneva and Tokyo. Boston and the NewYork City metro area are fair value, as are Milan and Singapore.UBS cites expectations of long-term price gains as a partialexplanation of demand for housing investment in major globalcities. Many market participants expect the best locations toreap most value growth in the long run; it’s the so-called “super-star” model, buoyed by the growth of high-wealth households.Falling mortgage rates over the past decade have also madebuying a home vastly more attractive. As long as supply can’tincrease rapidly, many buyers see “superstar city” prices decou-pling from local rents, incomes and national price levels,according to UBS.

Helping to give the superstar narrative additional credence in
recent years has been a surge in international demand, especially
from China, which has crowded out local buyers. An average price
growth of almost 20% in the past three years has confirmed the
expectations of even the most optimistic investors.—Paul Bubny ◆

Research over the
past two decades
has shown that,
for host cities, the
ROI on stadiums
is negligible or
even negative